Kettle Books $25M Reinsurance for Catastrophe Risks

Climate Change and the Future of Insurance

The impact of climate change is increasingly evident in the escalating frequency and severity of environmental events. Forest fires are becoming more intense and prolonged, while floods are occurring more often and causing greater damage. Climate change is frequently identified as a primary driver of these catastrophes.

Kettle Secures $25 Million in Series A Funding

Insurance technology startup Kettle, focused on reinsurance underwriting for catastrophic events, has announced a $25 million Series A funding round. This capital will be allocated to the development of tools and services specifically addressing a critical area: wildfires in California.

Acrew Capital spearheaded the round, with participation from Homebrew, True Ventures, Anthemis, Valor, DCVC, and LowerCarbon Capital.

Focus on California Wildfires

Kettle’s initial strategy centers on California wildfires, a particularly pressing issue. Events like the Caldor and Dixie fires have contributed to a significant increase in both the frequency and scale of wildfires within the state.

In 2020, over 4% of California’s land area was affected by wildfires. While the state typically experiences around 10,000 fires annually, a disproportionate number – 14 fires – account for 98% of the total wildfire damage.

Addressing the Insurance Gap

Nathaniel Manning, Kettle’s COO and co-founder, highlights a growing gap in the insurance market. Homeowners seeking wildfire coverage are often either unable to obtain it or face exceedingly high premiums.

This situation arises because insurance companies, despite their historical leadership in data science for risk assessment, have struggled to adapt their technologies to account for the effects of climate change and the resulting increase in catastrophic events.

The Innovator’s Dilemma in Insurance

Manning describes the industry’s situation as a classic “innovator’s dilemma,” where established companies fail to embrace new technologies. Traditional insurance modeling relies on historical data, which is becoming increasingly unreliable for predicting future risks in a changing climate.

“You can’t look at the last five years and determine the next 10 years anymore,” Manning stated. He emphasizes the importance of accurate and timely communication, drawing on his prior experience as CEO of Ushahidi, a crowdsourced information platform.

Kettle’s Business Model

Kettle primarily functions as a reinsurance technology provider for customer-facing insurance companies. It also directly underwrites insurance for high-value properties, ranging from $3 million to $10 million in value.

The reinsurance market, currently valued at $400 billion annually, is dominated by established players like Lloyd’s of London. Kettle believes these incumbents are not leveraging data and technology effectively to manage modern risks.

Leveraging Data Science and Machine Learning

Kettle’s approach involves utilizing machine learning to analyze weather data, satellite imagery, and other datasets. This allows for a significantly greater number of simulations compared to traditional insurance companies.

“Normally, an insurance company will run between 10,000 and 100,000 simulations to predict outcomes,” Manning explained. “We run over 500 billion.” Kettle claims an 89% accuracy rate in its predictions. As of August, 26 insurance carriers had contacted Kettle for risk modeling assistance, with three to four commercial deals expected to close by year-end.

The Ethics of Insuring Against Disaster

The concept of profiting from misfortune raises ethical considerations. Traditional insurance models often feel outdated, exploitative, or driven by lobbying efforts rather than genuine need. Insurance fraud further complicates the issue.

A New Perspective on Insurance

Manning acknowledges these concerns but argues that the insurance industry is fundamentally poorly managed, with misaligned incentives between customers and companies.

“But I do think it’s important,” he continued. “As a homeowner, if my home burns down I’ll get its value back. That can be a truly life changing thing.”

Investor Perspective and Future Outlook

Investors are drawn to Kettle’s disruptive potential, although the possibility of incumbent companies updating their data models remains a factor. This could lead to increased business for Kettle, a potential acquisition, or even failure.

Lauren Kolodny, partner at Acrew Capital, stated, “When you take a minute to think about it, it becomes very obvious why traditional reinsurers can’t accurately underwrite climate risk — their methodologies look to the past. And our climate is changing in ways that can’t be predicted on the basis of historical data. Kettle is solving a massive, global problem. And we’re so thrilled to deepen our partnership with this incredible team.”